Taxation angle in case of Joint Ownership

A joint housing loan comes with the twin benefit of increasing the overall loan eligibility and the income tax rebate that can be claimed by both co-applicants individually under Section 80C and Section 24. The mandate in claiming the income tax rebate is that the co-applicants of the housing loan should also co-own the underlying residential property.

In case a person is just a co-borrower of a loan and not a co-owner in the property, he cannot claim the tax rebates. On the other hand, if the co-owners are equal owners of a property but if the share of the loan is 2:1, the tax benefits can also be availed in the same ratio.

The income tax benefits are applicable in proportion to the ownership structure. For example, if the ownership in a property is 60:40, a loan of say Rs 50 lakhs will be split as Rs 30 lakhs and Rs 20 lakhs respectively and this ratio will be applicable while calculating tax benefits on interest/principal repaid on this loan.
Therefore, it is advisable for joint owners to procure an ownership sharing agreement stating the ownership proportion on a stamp paper as legal proof of the ownership. The case for the housing loan gets stronger in case of joint applicants. Banks consider the earning potential of co-borrowers and decide on the eligibility of the loan. Therefore, the loan eligibility increases in case of joint loan account.

The joint account holders (owners of the property) can claim income tax benefits individually. The housing loan benefits that fall under Section 80C and Section 24 of Income Tax Act make each borrower eligible for a maximum deduction of Rs 1.5 lakh and Rs 2.00 lakhs associated to principal repayment and interest payable on the home loan respectively.

In case the assessee has sold the residential property, it is advisable that new property should be brought in the name of assessee alone rather than joint name.

In CIT Vs Kamal Wahal and in CIT v. Ravinder Kumar Arora honorable Delhi High Court ruled where entire purchase consideration was paid only by the assessee, it would be treated as the property purchased by the assessee in his name and merely because he has included the name of his wife and the property was purchased in the joint names would not make any difference.

However on the same issue Parkash V/s ITO, Mumbai high Court has ruled in the favour of revenue. There is no Supreme Court ruling on the matter.

An assessee can receive rental income from any number of residential properties and housing loss (i.e excess of deduction over income) from one house property can be easily set off against income from other house property and even from salary income.